Key Points
- Safaricom’s net income fell 17.7% due to currency losses.
- Full-year earnings forecast to be $731 million–$778 million.
- Ethiopian unit to break even by 2027 amid challenges.
Safaricom, East Africa’s telecoms giant, has revised down its full-year earnings guidance, pointing to a sharp decline in net income driven by currency depreciation in Ethiopia, where it recently expanded operations.
Kenya’s largest telecom operator, partially owned by Vodacom and Vodafone, secured its license to operate in Ethiopia in 2022 following the country’s telecom sector liberalization.
Safaricom faces currency loss
The expansion into Ethiopia, Africa’s second-most populous nation with 120 million people, has offered growth opportunities but also presented significant economic hurdles, including inflation, security issues and, most recently, currency challenges.
Despite these obstacles, Safaricom reported strong performance in other metrics. Its earnings before interest and taxes (EBIT) for the first half of the year rose 31.9 percent year-over-year, while group service revenue increased by 14 percent, reaching Ksh 181.4 billion ($ 1.41 billion) by the end of September.
However, the depreciation of Ethiopia’s birr, following the government’s decision to adopt a market-determined exchange rate in July, has created new financial pressures. The move, part of a broader set of reforms aimed at opening Ethiopia’s financial sector and securing an International Monetary Fund lending program, led to a 106 percent fall in the birr against the Kenyan shilling.
Safaricom lowers forecast amid Ethiopian currency losses
Peter Ndegwa, Safaricom’s Group CEO, acknowledged the adverse effects of the birr’s devaluation on Safaricom’s earnings. Group net income dropped 17.7 percent year-over-year, a decline attributed primarily to exchange rate losses in Ethiopia. “Despite the short-term challenges, we remain confident in the long-term commercial success of our Ethiopian business,” Ndegwa stated.
He also expressed optimism about the division’s trajectory, citing encouraging customer acquisition and increased usage. As a result of these challenges, Safaricom adjusted its full-year earnings forecast to a range of Ksh 94 billion to Ksh 100 billion ($731 million to $778 million), down from an initial estimate of 103 billion to 109 billion shillings as seen in its recently released report.
CFO Dilip Pal noted that while the currency correction in Ethiopia posed a “substantial drag” on the half-year performance, its impact on full-year results would likely be smaller.
Safaricom Ethiopia faces delayed profit amid currency woes
Safaricom’s Ethiopian unit, which began operations just two years ago, will take another year to achieve break-even status, a timeline extended due to currency fluctuations. The unit is now projected to reach profitability by the 2027 financial year, with the foreign exchange rate reform adding complexity to financial forecasts.
Ndegwa explained that a 10-percentage-point change in the exchange rate could impact the company’s balance sheet by up to Ksh 8 billion($62 million), depending on the year-end rate.
The market reaction to Safaricom’s updated guidance was immediate, with shares on the Nairobi Securities Exchange (NSE) falling 2.75 percent by early trading hours. Safaricom remains the NSE’s largest company, and investor sentiment reflects caution as the company navigates both opportunities and economic headwinds in Ethiopia’s evolving market.
